Anna Nicole Smith Ruling Cuts Bankruptcy Court Authority, $89M Award

By Cynthia Hsu, Esq. on June 24, 2011 11:44 AM

The Supreme Court's bankruptcy court-based decision in Stern v. Marshall has made headlines partially because of the case's major players: Anna Nicole Smith, the now-deceased Playboy Playmate and E. Pierce Marshall, son of the billionaire tycoon she was married to.

Smith married her late husband, J. Howard Marshall, when she was 26 and he was 89. He died not too long after their nuptials. Smith was then embroiled in a legal battle with E. Pierce Marshall, her late husband's son, for part of the $1.6 billion estate that Howard left behind.

The Supreme Court's narrow decision was not based on the whether or not Smith or Howard's claims were more valid. Instead, it was based on a reading of the constitution and the authority granted to bankruptcy courts in the first place.

Bankruptcy judges are not like regular federal judges who sit in district courts and appeals courts, also called Article III judges. Article III judges have life tenure and salary. And, in fact, bankruptcy courts are under the legislative branch of the government, created by Congress. As a result, the Supreme Court came to the conclusion that since bankruptcy judges do not enjoy the same privileges as Article III federal judges, they cannot make decisions that only Article III judges could make - decisions that go beyond the bankruptcy court's proceedings.

Smith had originally been awarded $89 million from a bankruptcy court in California from Howard's estate, reports Bloomberg. However, the Supreme Court said that because this bankruptcy court decision was based on common or state law tort law, the bankruptcy court had exceeded its bounds by making a decision in it.

What does this mean for Smith's estate? Well, for one, the estate will not get the $89 million that the California bankruptcy court had originally awarded her. And, for bankruptcy courts, their powers and abilities to issue decisions have been limited by the Supreme Court. For bankruptcy courts, state law-based decisions are off the table.